Astro’s headline net profit for 3QFY23 fell by 95% YoY to RM5.8m, on higher transponder finance lease liabilities due to the strengthening of the USD. Excluding non-operating items, core net profit fell by 24% YoY to RM73m. Cumulative 9MFY23 core net profit of RM296m was below our and consensus expectations, accounting for 69% and 68% of full-year forecasts respectively. The discrepancy in our forecast was mainly due to the higher-than-expected operating costs. We cut our earnings forecasts for FY23-25F by an average of 10%, to account for the increase in operating costs. Following our earnings adjustment, our DCF-based TP for Astro is reduced to RM0.82. We maintain our Neutral call. A third interim dividend of 0.75 sen per share was declared, bringing its YTD dividend declared to 3.0 sen.

• 3QFY23 revenue fell 9.4% YoY, dragged by a weaker contribution from television (-7% YoY) and home-shopping (-56.5% YoY). The decline in television revenue was mainly attributable to lower subscription revenue, advertising revenue and sales of programming rights. Home-shopping segment continued to be affected by subdued consumer sentiment and the return of customers to physical stores. On the other hand, Radio segment revenue jumped 60.9% YoY, benefitting from the recovery momentum.

• 3QFY23 headline net profit fell 95% YoY, mainly due to the recognition of RM128.2m unrealized foreign exchange (FX) loss from unhedged finance lease liabilities. Excluding non-operating items, core net profit was down 24% YoY due to lower revenue and higher operating costs i.e. broadband costs and staff costs. Meanwhile, content cost was lower in the current quarter but we are expecting it to increase in 4QFY23, in tandem with the airing of World Cup 2022.

• Outlook. Astro has recently launched a broadband service called BIZfibre targeting small and medium-sized enterprises (SMEs) in Malaysia. It aspires to be the one-stop shop providing connectivity and entertainment solutions to the SMEs, a segment that contributes to 97% of total business establishments in the country. We believe that Astro’s offerings will be suitable for businesses in the food and beverage industry (such as restaurants, hotels and entertainment outlets) where there is a need for broadband connection as well as the broadcasting of legal content in their premises. This is also an attractive proposition to businesses given the High Court’s recent ruling that it is illegal for commercial premises to broadcast contents from unauthorised sources. Though we expect this to contribute positively to its broadband and commercial customer base, earnings contribution may not be material in the near term.

Source: PublicInvest Research - 16 Dec 2022